Financial Accounting

Learn the toughest concepts covered in your Financial Accounting class with step-by-step video tutorials and practice problems.

14. Financial Statement Analysis

Trend Percentages



Trend Percentages

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now let's discuss another tool of financial analysis, trend percentages. So trend percentages is a similar form of horizontal analysis. It's gonna show us trends in certain accounts. So it's gonna help us note, has this account been growing over years? Has incumbent growing or falling since our base year? Okay. So what we're gonna do is we're gonna choose a base year, which is generally the oldest year that we're showing. And then we're gonna calculate our trend percentage. Just like we see here, we're gonna take the years amount that we're talking about, and we'll divide it by the base years amount and we'll multiply by 100 to make it into a percentage. Okay, So the easiest way to see this is through an example. So let's go ahead and do this example right here. So we're going to compute the trend percentages for income from operations and if they don't give you a base year, you can assume that the oldest year is the base year. Okay, So let's go ahead and calculate our trend percentages. So what we're gonna do is we're gonna do that year's amount. So in this case it's the oldest year and the trend percentage is always going to be 100% in the base year, times 100. So 8 42 divided by 8 42 is obviously one times 100 is 100% right? So it's gonna be 100% in the base year? Let me get out of the way for these first few just so you see everything and now let's go on to 2015 the next year. So in this year we need to take that year's amount, which is 1,129,000 And divided by the base year of 842,000. And then we multiply it by 100 to turn it into a percentage. So 1,129,000, divided by 842,000. And then we multiply it by 100. So this comes out to we'll just round it to the nearest percent. It's going to be 134%. Right? So this tells us that our our income from operations in 2015 was 134% of what it was in 2014. Cool. So it shows the trend, right? The trend of growth since that year. Let's go on to the next one. So in 2016, same thing, we take that year's number 1,000,004 06. And divided by the base here, 842,000, we multiplied by 100 to get to our our percentage. So 1,000,004 06 divided by 842,000. That comes out to Um 167% will round it to the nearest percentage there. 167%. So that's 167% of our base year. Right? So let's go on to 2017. Now we're at 862,000 Divided by our base year of 842,000. So notice our our denominator always stays the same and we multiplied by 100. This is pretty easy, right? 8 62 divided by 8 42 times 100. So this one comes out to 100 2%. So notice these trends kind of give us some information. It shows that we were growing and growing and then it started decreasing again, right? We were growing in 2015 2016. And now we've had a sharp decrease in 2017. And now look what happens in 2018 we had 676,000 divided by our base year of 8 42,000. So clearly this is gonna be under 100 Because we have less income than our base here. So 676,000 divided by 842,000 times 100. So that comes out to approximately 80%. So notice our income in 2018 has dropped. So this shows us the trend of our income from operations over the years. That's why these are called trend percentages. So the calculation isn't that tough? Why don't you guys try practice down below

Show the trend percentages for Sales and Net Income. Use 2015 as the base year:

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